IMF predicts Britain's GDP growth rate will surge to 3.2% by year end

The International Monetary Fund has raised its forecast for Britain's GDP growth rate for the second time this year, heaping further embarrassment on the Washington-based organisation following its warning in 2013 that George Osborne's austerity policies were "playing with fire" and could trigger a slump.

The IMF said Britain would maintain its status as one of the world's fastest expanding major economies following a surge in growth to 3.2% by the end of the year.

The lender of last resort, which is headed by former French finance minister Christine Lagarde, uprated the UK's outlook for GDP growth by 0.4 percentage points this year and 0.2 percentage points to 2.7% next year in its latest world economic outlook.

After 18 months of recovery, the forecast that growth would continue for the rest of the year and into 2015 was a boost for George Osborne, especially after the same organisation criticised his austerity programme only last year.

Olivier Blanchard, the IMF's chief economist, said last April that the risk for Britain of "having no growth, or very little growth, for a long time is very high" should the government maintain its austerity programme.

The Office for National Statistics is to give its first estimate on Friday of output in the three months to the end of June following a strong first quarter that saw expansion hit 0.8%, giving an annual growth rate of more than 3%.

Despite a recent slowdown in high street spending and a cooling in house-price rises, the figures were expected to confirm what the governor of the Bank of England, Mark Carney, said in a speech on Wednesday was already true – that Britain had already passed its previous peak and was reaching new highs.

Osborne said: "Today the IMF has upgraded their 2014 forecast for the UK by more than any other major economy. The government's long-term economic plan is working. But the job is not yet done and so we will go on making the assessment of what needs to be done to secure a brighter economic future."

Blanchard also said on Thursday that while some economies were growing strongly, threats from geopolitical risks had intensified since its last report in April. He cited the threat from further sanctions against Russia and the potential knock-on effect to oil prices.

He cut the forecast for global growth from 3.7% to 3.4% in 2014 following worse than expected figures from the US, where companies had built up huge stockpiles of goods which went unsold during a record-breaking cold spell in the spring.

The IMF previously expected global growth to be nearer 5% at this stage of the recovery, but the severe slowdown in the eurozone, borrowing restrictions in China and a muted rebound in Japan have dashed these hopes.

He said: "Advanced economies are still confronted with high levels of public and private debt, which act as brakes on the recovery. These brakes are coming off, but at different rates across countries.

"Emerging markets are slowing down from pre-crisis growth rates. They have to address some of their underlying structural problems, and take on structural reforms. At the same time, they have to deal with the implications of monetary policy normalisation in the US," he added.

Russia suffered one of the largest downgrades by the IMF following a year in which foreign companies have pulled out and oligarchs have spent abroad, partly on London property.

Further sanctions and a deterioration in the situation across eastern Ukraine would harm Russia and other countries in the region and encourage further outflows of funds. The Russian economy has been hit hard by cuts in investment following huge capital outflows, leading to a 1.1 percentage point cut in its 2014 growth forecast to 0.2%.